High Dollar Impact Mixed

EDMONTON - Oct 1/07 - SNS -- Primary commodity markets have been more fully impacted by the strength of the Canadian dollar than urban sectors and industries which rely on imports, notes Alberta Agriculture.

"When the value of the Canadian dollar increases, Albertans get less revenue for their products sold abroad," says Sean Royer, Acting Director, Economics and Competitiveness, Alberta Agriculture and Food, Edmonton. "For example, if a bushel of canola is sold into the U.S. for $5, the producer receives $5 in U.S. funds, which is converted into Canadian dollars dependant on the exchange rate. Five years ago, when the Canadian dollar was at $0.67, producers would have received $8.35 (Cdn) for that bushel of canola. Now, with the Canadian dollar breaking par with the U.S., they only get $5 for that same bushel of canola. Every time the Canadian dollar goes up, no matter what the actual price is, less revenue comes back to producers."

For about 10 years, the Canadian dollar hovered in the $0.67 to $0.70 range. In the last four years, there has been a dramatic jump in the dollar of about $0.20. Sustained parity with the U.S. dollar may not be out of the question. This is a very short period of time to experience such a dramatic drop in revenue. As a result, the industry has had little time to adjust.

With less revenue, exporters are now forced to compete on a one-to-one basis with their U.S. counterparts on cost. "For some packers and primary processors, this is bad news as they have higher labor costs, smaller scale plants, less efficient machinery and lower utilization rates than U.S. plants. Many are not cost competitive and no longer have the low Canadian dollar (and resulting higher revenue) to buffer them from this reality," says Royer. "With further processed goods, that is those goods that are not traded in a commodity market, there is a little more protection against commodity fluctuations because more margin is worked into the higher value products."

For our producers, less revenue means that it will become increasingly important for them to reduce their cost of production if they want to remain profitable. "There's nothing producers or processors can do about the value of the dollar, but there are many things industry can do to improve Alberta's competitiveness in both the short and long term. To be competitive, it's just as important to reduce costs as it is to increase revenues. Government and industry have to look at strategies that do both," says Royer.

On the cost side, more investment has to be put into automating plants and replacing labor where ever possible. There is a labor shortage in Alberta that isn't going away anytime soon. More investment also has to be placed in developing high yielding feed varieties, more efficient machinery in processing plants, and managing information that flows through value chains. Overall, Alberta has been pretty good at investing in primary research; however, the province has fallen behind in commercializing or developing this research.

On the revenue side, there is a need to invest in the systems and infrastructure that will help diversify Alberta products from those of other countries. This means investing in good tracking and traceability systems, market development programs and ensuring access to key markets. "We have to ask ourselves how we can capitalize on our good animal welfare, food safety and environmental practices," says Royer. All of these things have been identified in one way or another through business plans and other initiatives such as the Competitiveness Initiative. This is a process where the Minister of Alberta Agriculture and Food has empowered a group of forward-thinking industry-based entrepreneurs to develop recommendations to the competitiveness challenges facing the industry.

"The high Canadian dollar presents many challenges for the industry but it also presents just as many opportunities," says Royer. "It will mean change to the way we approach our business, but I'm very confident Alberta is well positioned to take advantage of these opportunities in the future."y